RBC Capital sees 'buying opportunity' for Indivior after court ruling

Analysts at RBC Capital Markets said there could be a buying opportunity for Indivior shares after the drug company warned that a US court ruling over could lead to "material" loss of market share for a product that generated four-fifths of its revenues last year.

A District Court of Delaware ruled in favour of rival Dr Reddy’s against FTSE 250-listed Indivior over litigation covering patents for the UK company's Suboxone opioid addiction treatment film.

Presiding Judge Richard Andrews said Indivior did not show that Dr Reddy’s infringes the asserted claims of the patent, that Dr Reddy’s proposed version uses different process to make its film, though he had previously said other generic-drug makers Watson and Par infringe Suboxone patents.

Last year Suboxone film represented approximately 80% of Indivior's calendar year revenue with an average market share of 61% in the US.

After Indivior pointed to calculations that the launch in the US of a generic product that can be directly substituted by a pharmacist for the branded product without consultation with the patient would result in the branded incumbent losing up to 80% of its market share within a matter of months, RBC said this was not based on an entirely comparable situation.

Dr Reddy's generic film is expected to be approved by the US regulator in the first quarter of next year, though RBC pointed out that the substitutability of the generic was not yet publicly known, while also suggesting Indivior's appeal process could put any generic launch out by 12-18 months and finally that Indivior might try to reach some form of settlement with Dr Reddy’s.

"The one positive from this news is that Indivior’s patents were upheld, and Dr Reddy’s was found to not be infringing on said patents. This could potentially help offset any future generic challenges, as must also show to not be infringing. This could limit the number of competitors and hence the market share loss of Subuxone Film."

RBC's model suggested a range of 350p-422p was possible for Indivior's shares, with the upper end suggesting its RBP6000 subcutaneous long-acting monthly depot injection of buprenorphine could receive regulatory approval by the end of November even if Dr Reddy’s launches and Indivior loses 20% market share per year from 2018.

The note, written before trading in London began and the shares lost almost 40% to 251.2p, RBC said a big fall in the shares could present an opportunity for investors.

The 350p price would assume 20% annual revenue loss of Subuxone film starting in the second half of 2018, which assumes Dr Reddy’s launches post FDA approval and at risk and would equate to a price/earnings ratio of 17.7, 22.6 and 28.2 based on the 2018, 2019 and 2020 forecasts and noting that Indivior would be sat on $1bn of cash by end-2019.